PSO Rules Panel Struggles With Solvency Equity

March 1, 1998

Remember that pesky provider-sponsored organization insolvency problem? At press time, the federal PSO rulemaking panel was to meet for what members hope will be the last time to settle differences of opinion about solvency standards for federally approved Medicare-sponsored PSOs.

The major stumbling block is how a PSO should define net worth when it applies for a federal waiver. It's not the amount of initial net worth needed (the panel has agreed on $1.5 million); it's what counts toward it that's gumming up the works.

Provider groups favor including credits for reinsurance, outsourcing of administrative activities and "sweat equity." Insurance industry representatives on the panel say PSOs should initially have $1.5 million in cash or cash reserves set aside for a rainy day.

Another obstacle is the liquidity standard. The Blue Cross and Blue Shield Association says that HMOs are required to set aside a year's funding up front in almost half of the states and that the same rules should apply to PSOs. The American Hospital Association counters that the Balanced Budget Act called for easing standards so as to allow PSOs to become established in the Medicare market.